MLM Basics: The eBay Test

"Jason McRiffle" brought up an interesting test in a BehindMLM comment for the "legitimacy" of an MLM, and it's more useful than it first seems. He dubbed it "the eBay test".

If an MLMer wants you to join "for the product", the way to check whether it's viable or not... is to take the product name and size, and go search on eBay for the same item.

If you can buy it cheaper on eBay including shipping than what you are supposed to sell it for, then it's clearly NOT profitable to join at all as you can't retail it at any profit.

Let's randomly pick one product from each of the top 3 MLM companies by revenue: Amway, Avon, and Herbalife.

Amway Nutrilite Double X Refill "retail price" is $88 on Amway's website

Same refill is easily found on eBay for $50-$60, and if you want to bid, even less

That's not a surprise, is it?

Bad Propaganda: "Alternative Facts" about MLM

Recently the Trump camp used "alternative facts" when attempting to "defend" some numbers that are obviously bogus... with even MORE bogus factoids. It is interesting to note that this has been used by MLM for decades, with little success.

So what are some of the "alternative facts" that had been used by MLM supporters?

• If I can succeed you can too...  just like "any lotto ticket can be the big winner"
  
• Success requires hard work... and a whole lot of luck, and other stuff conveniently not mentioned
  
• Thousands of people around the world found MLM works for them...  out of 100 million, as estimated by DSA
  
• Avon is nothing compared to the bigger network marketing companies...  despite Avon is almost same size as Amway, about 10 billion annual revenue larger than any other MLM company.

MLM Basics: Why is MLM so... addicting?

Many people who are NOT in MLM wonder WHY MLM seems to be so addicting to its participants, and even as members lose money month after month. After all, an "entrepreneur" is supposed to be making money, right?

MLMSkeptic has studied the issues, and it is clear that the participants are not merely valuing the economic benefits from MLM (for there is minimal evidence of such enrichment except for a few near the top), but actually SOCIAL and MENTAL benefits that came with the MLM participation. It is the social and mental benefits, not the financial, that keeps the members in despite their minimal economic gains.

Those social and mental benefits can be divided roughly into three types:

• Sense of belonging (family and group dynamic)
• Sense of being something greater than oneself
• Sense of accomplishment  (recognition)

Let's discuss each one.

Sense of belonging (family and group dynamic)

Many of the articles that tout the benefits of MLM emphasize the camaraderie of the group and team. There are even articles that tout "come for the opportunity; stay for the relationship".

One such leader asked the question:

Have Your “Why” Established. This is very important. This is your major driving force, your reason WHY you decided to make a move and become a network marketer. It could be family, financial freedom or even time freedom.  

It's not an accident that the author talk about family being a driving force, but have you ever wondered which family did he mean?

He probably doesn't mean YOUR family. Not your wife/husband/partner, not your father/mother, not your children.

He probably means your SALES/NETWORK family: your upline, your downlines, your lateral marketing folks.

But doublespeak is a standard tactic in unethical network marketing.

So how do you know if your specific network marketing is ethical or not? You don't.

There were plenty of examples where families have been torn apart because half of the partnership saw and recognized the hidden dangers, but the other half was already in too deep to see the forest for the trees. It will take a huge jolt for someone to recognize the threat to one's family from cultish-MLMs and some just sank deeper and deeper.

One example was when a wife, who's in MLM was talking with her MLM female friends, and the topic drifted to the husband, who was not in MLM.  One of the so-called female friends suddenly suggested that the husband is such a loser for not joining the MLM and the wife should leave that loser of a husband. Clearly, the husband is what's holding the wife back from true success. Wife was shocked into silence. WHICH does she value more... her family (husband and children)... or her personal success for a few dollars? And what sort of people are around her that would suggest NOT placing her family first?

MLM Basics: Numbers Needed To Profit

One of the hardest things to analyze in a MLM is "How Much Money Will I Make".

The stupid ones recite the slogan: "As much as you want!"

The weasel ones add a disclaimer, "As much as you want (don't blame us if you fail)"

The realistic ones don't feed you BS, "Your success is dependent on your ability to sell, your ability to form a sales team, your effort and willingness to dedicate yourself and a whole lot of luck."

But none of them will be able to quote you a number, except what *they* have personally earned, or what someone in their team earned. And that doesn't say whether they do this every pay period, or where did this money come from: "personal volume" (retail sales by oneself), or commission from "group volume" (i.e. team total sales volume)

Amway is one of the few companies that even calculates what average member earn via retail.

The average monthly Gross Income for "active" IBOs was USD $183 (in the US) / CAD $206 (in Canada) in 2014. 
53% of IBOs in the US (and 49% of IBOs in Canada) were considered "active" (in 2014)
source: Achieve Magazine, published by Amway, August 2014 issue, from AchieveMagazine website

Amway calculate "gross income" from retail sales, minus the cost of the goods sold, which basically means they ASSUMED that product purchased by the IBO (independent business owner, i.e. participant) will be sold at MSRP and thus profit can be calculated. While they did not include any commissions (most MLMs report ONLY commissions), it also (and quite understandably) did not attempt to estimate business expenses, such as time and effort to attend meetings, demonstrations, seminars and events, and so on.

What should you look forward to MLM and Direct Selling in 2016?

It is now 2016, and as usual, positive thinkers are already out hating my blog posts already.

First reader comment of 2016 starts with:

You loser ...obviously couldn't make it in any MLM's - most likely your attitude and shallow thinking.

Hahahahaha.  This is the sort of typical potty mouth positive thinker type comment, though in this instance he was reacting to my comparison of "MLM Cult vs. ISIS".

The fact that he somehow thinks that "MLM Cult" refers to his chosen profession is rather amusing, isn't it?

But really, let's throw around some REAL numbers, compiled by Direct Selling Association (DSA.org) and the World Federation of DSA (sort of global DSA), the industry lobby group.  It's too early for 2015 numbers, but here's the 2014 factsheet, as published by DSA (US).

DSA factsheet 2014, http://www.dsa.org/docs/default-source/research/research2014factsheet.pdf

The key figures... 34.47 billion USD in 2014 US Retail Sales... by 18.2 million people "involved".

That's less than $1900 sold per "involved" person PER YEAR. ($1894 if you want to be exact)

And since people are joining faster than actual retail growth sales (8.3% vs. 5.5%), average retail per person per year is GOING DOWN. This is despite the PR spin, i.e. "more individuals generated more revenue in 2014 than any year previously".

And remember, that's retail sales, NOT PROFIT.  Actual profit will be FAR LESS. Even if you estimate a margin of 20% AFTER expenses, that is $379 per year.

Vemma Lost Injunction Fight. Now What?

If you haven't heard, Vemma lost its attempt to reverse the temporary restraining order put in by FTC when it was shut down. The judge found that the claims and evidence supporting such as put forth by FTC to have merit  and Vemma's counter-argument and evidence insufficient to counterbalance such evidence.

As a result, Vemma will have to change:

...prohibition of the sale of Affiliate Packs, and the linking or tying of an affiliate’s eligibility for bonuses or accumulation of qualifying points to their own purchases of Vemma product, whether through participation in the auto-delivery program or otherwise. 

The injunction will also encompass the “Two & Go” Program, which falls under the above prohibition.

In other words, buying drinks no longer counts as qualifying criteria.

What are the points to take away from this decision?

1. Affiliates are not customers

Affiliates' job are to FIND customers, and be compensated for doing so. They should not be customers themselves, who want product for product's value.

Yet there's no doubt that affiliates are making the purchases in Vemma. That leads us to the next item...

What is Business Porn, and Why Is It Bad For You?

Ever wonder who writes those books about MLMs? Or "how to become a millionaire" type books?

Probably nobody you ever heard of.

G.K. Chesterton once wrote in his essay The Fallacy of Success,  "...On every bookstall, in every magazine, you may find works telling people how to succeed. They are books showing men how to succeed in everything; they are written by men who cannot even succeed in writing books. To begin with, of course, there is no such thing as Success. Or, if you like to put it so, there is nothing that is not successful. That a thing is successful merely means that it is; a millionaire is successful in being a millionaire and a donkey in being a donkey."

Don't get me started on Robert "Rich Dad" Kiyosaki... As I've written about his bargain with MLM, and how his success is due to selling to MLM, not due to his own success. He had f***ed over at least two of his partners. His advice on MLM doesn't even fit his own quadrant system. And he doesn't understand what Ponzi is but managed to write about it any way for Yahoo Finance.

Yet people seem to regard him as some sort of financial genius. Why?

Frankly, Kiyosaki, and many of these so-called business advice writers, write "business porn".

Do you know what is business porn? No? Do you know what regular porn is? It's sex, with the boring parts edited out and dressed up to look the most exciting that few if any sane people would f*** that way.

Porn is fake. It's a SIMULATION of sex. Business porn is the same... books that explain to you the bloody obvious: making money is good. Stock photos that you wish your office look like, and so on. It's NOT REAL.

People who buy these books think there's "that one thing" they will "realize / get" to suddenly turn failure into "success". Often it's something about "attitude" (or mindset), or "gadget" or tool or system, or certain behavioral gimmicks that somehow symbolizes "leadership". They put up the stock photos that their business would never look like, or sprout cliche slogans like "you have to fake it to make it".

But just as porn is not real sex, business porn is not real business advice, even though they sure sound like real advice.

MLM Basics: Just What is Deductible in MLM, and what is NOT?

One of the "advantages" of opening your own business, MLM proponents touted, was that you can deduct a lot expenses as cost of doing business. But can you really?

In terms related to MLM, can you deduct the trips (tickets, hotels, travel expenses, etc.) to attend meetings all over the country?

Under rules in the Federal Tax Code, Section 162 provides that a taxpayer who is carrying on a trade or business may deduct ordinary and necessary expenses incurred in connection with the operation of the business.  The taxpayer has the burden of proving entitlement to a business expense deduction. The deductibility of their MLM expenses depended on whether their activity was engaged in for profit.

To determine whether an activity is engaged in for profit, Section 183 provides a list of factors for the court to consider: (1) The manner in which the taxpayer carried on the activity; (2) the expertise of the taxpayer or his advisers; (3) the time and effort expended by the taxpayer in carrying on the activity; (4) the expectation that the assets used in the activity may appreciate in value; (5) the success of the taxpayer in carrying on other similar or dissimilar activities; (6) the taxpayer's history of income or losses with respect to the activity; (7) the amount of occasional profits, if any, which are earned; (8) the financial status of the taxpayer; and (9) elements of personal pleasure or recreation.

This brings us to the case of the Olletts in 2004. They joined Amway in 1996. They kept their day jobs and made about $100K in 1999 and 2000 respectively, and claimed Amway expenses of $17500 in 1999 and $23000 in 2000, both year with losses (-1450 in 1999 and -3235 in 2000). IRS denied their deductions and it went into tax court, where they were ruled against (i.e. deductions are disallowed) in 2004. Do you know why? The hints are listed above, but let's be specific...

MLM Mythbusting: Is MLM really a growth industry? (The Numbers May Surprise You)

When you listen to MLMers / Network Marketers, you're often told that MLM is the big thing, it's "experiencing record growth", it's "amassing fortunes for millions of people each year", it's "#1 millionaire producing industry", big companies are going MLM, and so on and so forth. They'll dazzle you with numbers such as

• Every week 150000 people join network marketing around the world (but how many quit?)
• Worldwide sales of MLM is estimated to be 90 billion (still less than 1% of world economy)
• DSA estimates 200 million new distributors in next 10 years (again, how many quit?)

Is MLM actually growing that much, when compared to other industries? Let's look a little closer. 

Is MLM the "next big thing"?

Claims have been made since the 1990's that MLM is the next big thing.  Back in 1990, Richard Poe wrote in Success magazine that network marketing is "the most powerful way to reach consumers in the 90s". He also wrote a few books, specifically, Wave 4.  This quote was reproduced ad infinitum by various MLMers trying to legitimize their own little niche. You can see this example where the author changed it to "21st century economy".

Basically, they've been saying it for THREE DECADES (going into FOURTH) and it STILL haven't come true. 

Those claims had not come true. Internet soon surpassed network marketing as the way to reach consumers, with online shopping, and ready access to review sites, peer reviews, and more. E-Commerce is a 289 BILLION dollar industry in 2012. For comparison, direct sales and network marketing is a 31.6 Billion industry in 2012, as per DSA. (see below)

One more point of comparison... Total US retail for 2012 is $4.9 TRILLION.  That makes direct sales 0.64% of stuff sold. It's a niche market, and it's not growing much, and hadn't done so for decades. 

Is MLM "experiencing record growth"? 

A lot of places repeat big words like "record growth"... 

The problem is... relative to what? DSA itself reports that sales has been down since 2006 and only just recovered in 2013 or 2014 (not counting inflation). See for yourself (all graphs courtesy of DSA.org):

1991 to 2000

2000 to 2008

2008 to 2012 (latest data from DSA)

So "record growth"... In relation to what, exactly?  It's now 2014 and they probably did break their old 2006 record... but that just means they are not as recession proof as they claimed to be... 

Also, is 31 billion a lot? Again, in relation to what?  Franchising is a 740 billion industry as of 2011, according to a PricewaterhouseCoopers analysis. And franchising started at about the same time as network marketing.  In fact, franchising may have success rate of up to 95% (the stats are old, per 1991, and no new data had been compiled since)

"Record growth" statement is meaningless. 

MLM Basics: Why are there so many names for MLM?

Have you ever wondered why are there so many different names for multi-level marketing? Here are most of them:

• 

  Network marketing? Multi-level marketing?
  Home-based Franchising? Direct Sales?
  Concentric Marketing? Affiliate Marketing?
  Referral Marketing? Inline Marketing?
  WTFIsIt Marketing?
  (Photo credit: Wikipedia)

  Multi-level marketing, the main term
• Network marketing (most often used alternative)
• Home-based Business Franchising -- WARNING: franchising is NOT multi-level marketing
• Direct sales -- selling direct to consumers, related to but NOT equivalent to MLM
• Affiliate Marketing -- now used by Vemma, often plagued by fraud
• Seller-Assisted Marketing -- mostly a "business opportunity" scam
• Referral Marketing / sales -- marketing via word of mouth; some forms may be illegal
• Dual Marketing / Dual-Level Marketing -- mainly used by Mary Kay, still MLM
• Concentric Marketing -- used by convicted pyramid scheme Burnlounge, replaced "levels" with "circles", but otherwise, the same as MLM
• Consumer Direct Marketing -- the consumer is doing the marketing, potentially illegal if recruitment heavy, as it becomes recruiters recruiting more recruiters. 
• Inline Marketing -- trademarked by "Nutraceuticals Inc", it's still MLM

There are probably a few more I missed. If you spot some new ones not on this list, as a something-marketing, feel free to let me know via the comments.

Any way, why are there so many fancy names for the same thing?  Fraud experts, such as Tracy Coenen say this is an attempt to obfuscate and distract from the bad reputation multi-level marketing had picked up over the decades it had been in existence. However, I think this is also a symptom of how the decentralized nature of MLM became a sin, not a virtue. People are just appropriating terms that sounds SOMEWHAT similar to multi-level marketing, and in some cases, inventing them out of thin air.

First, let us define multi-level marketing... a marketing strategy where the sales force is compensated on multiple levels... direct sales profit, and portion of sales profit achieved by other salespeople they recruited (downlines). Remember, MLM = direct sales + commission based on downline sales.

But first, we have to clear up a few myths...

MLM History: The (Not so) Secret Origins of Amway

English: Honda- Amway（AVCL）Hồ Chí Minh (Photo credit: Wikipedia)

You can't mention multi-level marketing without mentioning Amway, but do people actually know the real origins of Amway?

If you go to Amway's website, their timeline only goes up to 1950's, when Jay Van Andel and Rich DeVos founded "American Way" in Ada Michigan, and later shortened the name to Amway. But in reality, their history goes back a bit further.

Carl Rehnborg,
courtesy of nutrilite.com

Origin of Amway can actually be traced back to 1930's to a gentleman named Carl Rehnborg, founder of Nutrilite (exclusively distributed by Amway). According to Nutrilite's website, Rehnborg, who lived in China as early as 1915, had experienced much of the unrest during that uncertain era in Shanghai, and experimented with soup/broth made from various locally procured ingredients, including herbs, plants and vegetables, animal bones (source of calcium), and even rust from rusty nails (source of iron) to supplement the meager army rations at the time.

It is worth noting that Mr. Rehnborg was only verified to be a salesman for Colgate in China at some time (there are some doubts, according to some sources, that he may or may not be in China at the time he claimed) and has no verifiable formal training in nutrition. There are some unverifiable or self-referential claims that he may have been a "doctor of chemistry".  According to yet another source, he's "trained in biology and chemistry" but apparently did not have a degree.

Upon returning to the US in the 1930's, healthier than others due to the broth/soup (so he claimed) but broke, he started experimenting with the beginnings of multi-vitamin / nutritional supplement market. When he felt he had perfected the formula, he started "California Vitamin Corporation" in 1934 and started selling "Vita-6" (later "VitaSol") to friends and friends of friends. What was not mentioned was upon returning to the US (he had sent back his wife and children before the unrest in China started) Rehnborg apparently turned down a job from Colgate in order to pursue his dream, which caused his first wife and two children to leave him. His second wife died at childbirth with the child.

According to Carl's son Sam (from Carl's third wife) , Carl discovered "contrafreeloading" at this time, as the supplements given to friends for "trial" was left on a shelf and forgotten. When he started CHARGING MONEY for the supplements, then people really started wanting to buy them.  When people started referring people to Rehnborg to buy his products, Rehnborg told them that they should sell the stuff themselves, and he'll give them discounts. Thus is the seed planted for multi-level marketing.

Bad Propaganda: Avon was NOT a sterling example of MLM success

 u

Avon logo  (Photo credit: Wikipedia)

When trolling for new members, the recruiters for MLM often cite Avon, Amway, and until recently, Herbalife as sterling examples of network marketing. But are they really?

Since Amway is a private company, I have no stock data to show you, and Herbalife prices are crazy because some hedge fund managers are having an ego trip by playing with HLF stock. That's not a good indicator of the confidence in the company.

But Avon, that company had been around for over 100 years. How did it do?

If you enter AVP into Google, you'd find that Avon had been in STEADY DECLINE for the last ten years... since it adopted MLM. That's right, Avon did NOT adopt multi-level marketing until 2005. And it had been FAILING every year.

Avon Products, as of 18-FEB-2014

The stock chart is clear: for the last 10 years, S&P 500 had gone up 71%, while Avon stock price had gone DOWN 52%.

And one of the MAJOR change during that decade is Avon adopting MLM in 2005.

Please recall that MLM was started in 1979 when Amway survived an FTC challenge in court.

It took 25 years for Avon to go MLM, after MLM was created, and 100+ years AFTER the company was founded.

And it had done steadily WORSE every year, ever since.

Think about that. What do the stockholders know that we don't?

(And why would MLM defenders cite Herbalife's stock price rise since Ackman's challenge as proof that MLM is thriving, while ignoring Avon's price drop?)

MLM Absurdities: Yes, Your Family Doctor Could Be Selling MLM stuff too

I was reading updates on Tracy Coenan's Sequence Inc. files when I came across a company called Metagenics, which seem to be nutritional supplements sold through doctor's offices (including doctor of chiropractics, i.e. chiropractors).

As most doctors are not nutritionists, one wonders if they are really qualified to do so... or is this just some sort of network marketing that had reached doctor's offices?

You'd think doctors, with proper health education (and I do mean M.D.s, not D.C's  doctor of chiropractics), would know enough to not do something questionable, but there's evidence of even HOSPITALS trying out devices based on pseudo-science.

But it's always possible they know something that we don't. So what can be found by Google?

A quick check revealed that they've been warned by the FDA to stop falsely advertising their product as "good for" (condition), and all there nutritonal supplements, normally classified as "food", had made sufficient claims to be considered DRUGS instead, and that's ILLEGAL!  (Drugs have MUCH more stringent testing criteria).

Here's the first two paragraphs:

WARNING LETTER

English: Logo of the FDA . (Photo credit: Wikipedia)

Dear Dr. Troup:

This is to advise you that the Food and Drug Administration (FDA) reviewed your website at the internet address www.metagenics.com in August 2013, and has determined that you take orders there for the products UltraClear®, UltraClear® Plus, UltraClear® Plus pH, UltraClear RENEW™, GI Sustain, UltraMeal® Plus, UltraMeal® Plus 360, UltraInflamX®, UltraInflamX® Plus 360, UltraGlycemX®, GlycemX™ 360, Ultracare for Kids®, BariatrX Essentials Bariatric Meal, and ArginCor. These products are labeled as “medical foods,” and the labeling claims on your website represent these products as medical foods for the dietary management of a variety of medical conditions.

Based on our review, we have determined that these products are misbranded under section 403(a)(1) of the Federal Food, Drug, and Cosmetic Act (the Act) [21 U.S.C. § 343(a)(1)], because the labeling is false and misleading in that the products are labeled and marketed as medical foods but do not meet the statutory definition of a medical food in the Orphan Drug Act [21 U.S.C. § 360ee(b)(3)] or the criteria set forth in 21 CFR 101.9(j)(8). Furthermore, because these products are labeled and marketed as medical foods, but do not meet the statutory definition of a medical food, FDA has determined that these products are promoted for conditions that cause them to be drugs under section 201(g)(1)(B) of the Act [21 U.S.C. § 321(g)(1)(B)]. You can find the Act and its implementing regulations on FDA’s website at http://www.fda.gov.

Ouch, this is bad, having your product slapped by no less than the FDA for making irresponsible claims.  But wait, it gets worse:

BREAKING NEWS: Dawn Wright-Olivares and Dan Olivares to appear in Charlotte NC Federal Court Wednesday Feb 5th 2014

WXII-TV (Photo credit: Wikipedia)

According to WXII TV Channel 12 report, Dawn Wright-Olivares, former CMO of Zeek Rewards Ponzi, and her stepson Dan Olivares, former CTO of Zeek Rewards will be appearing at the Charlotte North Carolina Federal Court to plead guilty to criminal conspiracy to commit fraud, coming Wednesday, Feb 5th, 2014.

Zeek Rewards is the largest Ponzi scheme in the US in terms of victims involved, with up to 1 million victims all over the world, and current figures puts it at $850 million, primarily middle-class victims.

Both Dawn and Dan had already plead guilty to the civil charges by SEC and agreed to cough up almost 11 million dollars, the amount they got from Zeek during its run, as a part of the plea deal.

US Attorney's office has no comment on the case, citing ongoing investigation.

MLM Absurdities: To a Recruiter, There Are No Customers (Just Potential Downlines)

Previously, MLM Skeptic has posed the question... Why had network marketing lost its will to retail?  It was more of a hypothetical question as network marketing should be all about retail, but it seems that many network marketing firms had morphed into "product-based pyramid scheme" (PBPS) that seem to be making a lot of sales, but has no proof that it was actually retailing (most if not all) products to the end consumers. Instead, they are selling products to their distributors... and from there, they don't care any more. They'd love to have the distributors to consume all of the products, and in fact, DSA had fought so, by getting several states to adopt anti-pyramid laws that specifically legalized self-consumption, and DSA said about internal consumption (i.e. self-consumption)

...compensation received by salespeople for products they themselves buy and use, and those bought and used by other salespeople within their organization, is a legitimate, legal and ethical practice and not evidence of illegal pyramid activity. 

http://www.dsa.org/ethics/internalconsumptionwhitepaper.pdf

DSA, by adopting the position, has undermined its own position that network marketing is about retail, by allowing distributors to take "shortcuts" to sales goals by buying products themselves. Without audits and limits, self-consumption leads to product-based pyramid schemes.

Somewhere along the way between 1979 (FTC vs. Amway) and now, MLM had lost its soul along the way, by forgetting about retailing, but instead, embraced "self-consumption" and fudging numbers, and probably a bit of willful ignorance, i.e. we don't know about how much we retail because if we know, we may find ourselves illegal.

Part of the cause is the rise of the recruiter-MLMer, previously identified in "6 types of MLMer", and they helped PBPS along by playing loose with the rules.

But first, let us discuss what is the "ideal" MLM, and how far had the modern MLM wandered from that ideal.

Guest Post: Vemma and Napoleon Hill's "Think and Grow Rich", Part 2 of 6

Previously we had SlayerofScams, a fellow scambuster on IGN, posting his essay on how people misconstrue Napoleon Hill's advice to coerce the weak-minded sheeple. [ Part 1 of 6 ]

Here's part 2.

----------

SlayerOfScams, Dec 30, 2013

Here is some more wisdom from Napoleon Hill to Vemma victims. This is one of Hill's thirty causes for failure at life:

29. GUESSING INSTEAD OF THINKING. Most people are too indifferent or lazy to acquire FACTS with which to THINK ACCURATELY. They prefer to act on "opinions" created by guesswork or snap-judgments.

Where have we seen that before in relation to Verve? I can think of at least two places.

First, in Post #940 (link to IGN board), where we see Darik Alexander saying: "Don't even entertain the notion [that Vemma is a pyramid scheme] because you know it is not...and if you don't even entertain the notion, they [potential new recruits] will just be like, 'Oh damn, I feel like an idiot for even saying that question."

Second, in Post #944 (link to IGN board) where we see Darik Alexander saying: "The only way you are going to know if what I am telling you is really real is if you trust me."

So, to paraphrase those above quotations, we have Hill saying: don't be an idiot - don't rush into irrational decisions, and don't form irresponsible opinions without first doing research and educating yourself with the necessary facts.

Next, we have Alexander saying: don't even bother thinking about whether Verve is a pyramid scheme or not because the subject is not even open for discussion and you should feel stupid for even wondering about it. Further, we also have Alexander saying to trust him just because he said he should be trusted. No thinking is required, on the part of you, the Verve victim. From you nothing is required except for blind faith in the scammer who wants to take your money.

And most damning of all, on top of all that, we have Alexander (again in post #940) saying at about the 10:00 mark of his "home event" video: "Don't overcomplicate it. We got really rich because we didn't overcomplicate it. Tell everyone you know to come to the next event...Don't say 'Vemma.' Don't say 'Verve.' Say: 'This is going to change your freakin' life' - because it actually will, and I will guarantee that. You make sure they show up, I make sure they sign-up."

Translation from SlayerOfScams [what Alexander's words really mean]: "Successful professional scam artists like myself do not mention the words Vemma or Verve to potential new victims, because to do that would give them the power to research Vemma/Verve and realize that it is a scam and illegal pyramid scheme before we have had a chance to brainwash them at one of our events. Therefore, sell to everyone you know nothing but the dream of riches. Get them to come to one of our Vemma party events, and I will do the heavy-lifting to make sure that they become fully brainwashed and join the Vemma/Verve pyramid before they have had any chance to research or to think about it."

MLM Basics: Why Had Network Marketing Lost Its Love of Retail?

Modern network marketing companies lost their love of retail, and thus its primary purpose.

According to the law and their implied purpose, a network marketing company's purpose is to retail stuff through their affiliates (IBOs, distributors, counselors, salespeople... whatever). However, few if any of modern MLM's verify that the products they sold to their affiliates are actually retailed. Almost all network marketing companies merely require a signed "promise" from the affiliates that they promise to honor the Amway Safeguard Rule #1 "Retail Customer Rule". And without retail, the common affiliates's only income would be to recruit additional affiliates (who also do not retail, since retail is hard). If you extrapolate this out, you have a bunch of salesepeople who sold stuff to themselves, while recruiting yet more people like that. That would make it a pyramid scheme.

The Omnitrition Case and Lack of True Retail

In the Webster vs. Omnitrition case, Webster, an affiliate of Omnitrition, sued Omnitrition of being a pyramid scheme. The company responded by asking the court for a summary judgment, i.e. "Court, please tell me (and whoever sued me) I am NOT a pyramid scheme! I use Amway Safeguard Rules! I can't be!" After looking at the evidence,  the court ruled that if the company (Omnitrition) does not audit actual retail, then the company cannot use this "signed promise" to prove they are not a pyramid scheme. Omnitrition then immediately settled the lawsuit with Webster, as they apparently find paying off Webster, et al. to be easier than actually auditing their retail.

Yet dozen years after Omnitrition case, no major network marketing company that I know of, audits retail.

The implication is mindblowing: virtually all major network marketing companies in the US are in danger of being declared a pyramid scheme, despite their claimed adoption of Amway Safeguard Rules that supposedly separated network marketing from pyramid schemes, because they do NOT audit retail.

When Herbalife was first accused by Bill Ackman to be a pyramid scheme at the end of 2012, Herbalife cannot cite how many retail customers it has. Even now in 2014, Herbalife is STILL citing the retail number it EXTRAPOLATED from surveys it conducted in 2013. Herbalife cited a lot of ancillary numbers, like "amount of products directly shipped to non distributors" (31% IIRC), but it has NO RETAIL NUMBERS.

Herbalife classified their ranks by amount of downlines they have (no downline, single level downline, multi-level downlines), and claimed those with no downline are "customers", and those with single level downline are retailers.

THIS MAKES NO SENSE. By definition, EVERY distributor, no matter if they have downline or not, ARE RETAILERS, if the company was following the Amway Safeguard Rules!

Herbalife also produced survey results in 2013 that claimed 44% of its distributors have NO INTENTION OF RETAIL PROFIT, and 73% PRIMARILY JOINED FOR 25% DISCOUNT.

Why would a company NOT encourage retail, which is at the heart of network marketing?

Because lack of retail enrich those at the very top of the company and the company itself, with minimal effort and expenses needed all the way around (company or affiliate).

MLM Dictionary: Amway Safeguard Rules

English: Honda- Amway（AVCL）Hồ Chí Minh (Photo credit: Wikipedia)

Amway Safeguard Rules represents a set of "rules" (actually concessions) implemented by Amway when it was sued by the Federal Trade Commission (FTC) in 1975. With the reform of the compensation plan where the IBOs (independent business owners, i.e. sales affiliates) are only paid for what they sell and what their downlines well, and the provisions in these rules, FTC reluctantly agreed that Amway does NOT fit the Koscot test for pyramid scheme. This was finalized in 1979, and became the basis for the entire "multi-level marketing" industry.

In the successful 1975 FTC prosecution of "Koscot Interplanetary" and earlier prosecution of "Dare to be Great", FTC specified the four specific problems they have with the pyramid scheme:

• a) Large membership fees (Dare to be Great can cost up to $2000 or more in 1970's!)
• b) Front-end loading (buying a huge "starter kit") and inventory loading (buying so much inventory just so your upline can get the commission)
• c) Programs in which distributors were misled as to the amount of commission they might reasonably earn (misleading income claims), and
• d) Programs in which commissions were not based on the sale of product to the ultimate consumers. (no true retail customer means it's a money circulation game)

SEC had also previously joined in the prosecution of "Dare to be Great" in 1973, as it considered a pyramid scheme similar to a ponzi scheme...  you put in money, and you expect to get more out of it with rather minimal effort, via the rule known as the "Howey Test".

In fact, many states as well as the US Postal Service have also joined in the prosecution of misleading direct sales, esp. those sent through the mail. Some argued that this patchwork of regulations, different from state to state, created such a hostile atmosphere for direct sales that it would have perished...

An infamous player of this era is called Cambridge Plan International, founded by Jack and Eileen Feather. Some of their most infamous products are "Mark Eden Bust Developer" (diet supplement to make women's boobs bigger), "Astro-Trimmer" (diet supplement that shrinks your tummy fat), and their namesake, the "Cambridge Diet", powdered drinks, soup, and such, only 350 calories, developed by Cambridge professor!  Cambridge eventually went bust when it tried to shift from mail order model (prosecuted multiple times for mail fraud) to direct sales, then the direct sales went bubble and burst. It started with 25 reps in 1981, to 150000 reps in 1982...  and declared Chapter 11 bankruptcy in 1983.

Direct sales basically would not have survived had Amway not survived the FTC lawsuit, and it did not survive unscaped. The ruling, 1979 FTC vs. Amway, resulting in a consent decree where the company agreed to several fundamental changes, that became known as the "Amway Safeguard Rules". (Incidentally, Amway also agreed to tone down income claims, and agree not to restrict the power of affiliates to set prices, i.e. price-fixing).

So what are the Amway safeguard rules? It's quite simple... 3 simple steps.

Why Is Robert Kiyosaki Trying to Shoehorn MLM onto his Cashflow Quadrant in the WRONG Quadrant?

One of the most frequent pro-MLM arguments from fans of network marketing is "Robert Kiyosaki likes it!" (with an implied "he knows what he's talking about!")

Previously, MLM Skeptic has documented that Kiyosaki was actually an Amway rep (and a rather unsuccessful one, as he never touted his success there, or rather, NEVER EVER mentioned it) once upon a time, his book only became successful because it was "discovered" by Bill Galvin, a then diamond Amway rep, who recommended his sales organization, i.e. Yager Team, adopt it wholesale, as a part of the "Amway Tool Scam".  With the sales numbers "kickstarted" via MLM, Kiyosaki went to Warner Business Books and FINALLY (after YEARS of trying) got a real publisher instead self-publishing.

Thus, let's just say that Robert Kiyosaki is not exactly an impartitial expert when it comes to network marketing. Because he owes his entire publishing success to it, he's unlikely to say bad things about it.

But let's analyze the book Rich Dad Poor Dad, and its sequel, Cashflow Quadrant instead, and how it REALLY applies to MLM.

Most people who got the "recruiter's version" of "why you should choose MLM" will basically explain to you that MLM is in the "B" quadrant of Cashflow Quadrant, which looks like this, from a MLMer...

Employee works for Business owner, "has a job"

Self-Employed, or specialists, controls/owns their own job

Business owners own a system, so they can sit back and their business will continue to make money. (they hire employees)

Investor owns investments... money makes more money.

Sounds pithy, yes? Nothing *really* wrong with that. But... Where does a MLMer fit in on this quadrant?

The MLMers will say that it's in "B" quadrant. In fact, even Kiyosaki claimed that "network marketing is what I recommend for people who want to move to the B quadrant".

WRONG!

Robert Kiyosaki's Faustian Bargain With Network Marketing Is Confirmed

Previously, MLM Skeptic has raised the question whether Robert Kiyosaki had made a Faustian bargain with Network Marketing 

That's when someone pointed me to this sound-bite from Amquix, which confirmed that Kiyosaki was a downline in Amway under Bill Galvin.

http://www.amquix.info/sounds/kiyosaki_in_amway.mp3

Bill Galvin was a "diamond" level sales leader in Amway from way back when. In fact, he was thanked in the dedication / acknowledgement page of "Rich Dad Poor Dad". Here's a screenshot from the Amazon "look inside" and there's the name "Bill Galvin" right there. In fact, if you Google the names on this list, most of them *are* high-level Amway IBOs.

This is also confirmed via research done by SimpleDollar

Amway Global (Photo credit: Wikipedia)

He [Robert T. Kiyosaki] was involved in several business deals (most notably, nylon Velcro wallets) in the 1970s and 1980s which fell apart, leaving him bankrupt in the mid-1980s. In this timeframe, he became heavily involved with Amway, a multi-level marketing system, and began to cultivate relationships with many of the “top” members. In 1985, Kiyosaki founded Cashflow Technologies, a company that was designed to pitch a series of books and other educational materials that eventually evolved into Rich Dad, Poor Dad. 

By the mid-1990s, Kiyosaki had self-printed Rich Dad, Poor Dad and it was starting to appear in wide distribution among members of the Amway/Quixtar organization, as individuals higher in the pyramid would recommend it to people further down the chain looking to get ahead. 

Yet you NEVER hear Kiyosaki talk about his MLM career, did you? Nope. It was NOT mentioned in ANY of his books.

Perhaps he doesn't want you to know, hmmm?

But wait, there's more!